Q&A with Steve Westly of the Westly Group
Impact Profile
Steve Westly, founder of the Westly Group
As we prepare for the upcoming ONE WORLD Virtual Impact Summit on April 30th, we are talking with investors and entrepreneurs that are supporting and creating and supporting innovative, impact-driven companies. Steve Westly is one of those investors who be sharing his experience and knowledge with us on April 30.
Steve has a unique background supporting educational, government and corporate entities. He founded the Westly Group in 2007, which is one of the larger smart energy and transportation venture firms in the US. We chatted with Steve about the role investors play in creating and sustaining social impact.
What are some of the social and environmental challenges you are addressing through your work as an investor? (In essence, the themes of your fund, with any compelling statistics you would like to share that underscore the problem)
Our fund has 13 of the world’s larger energy, auto and water companies as investors. We’re working with all of these companies to help them develop new revenue models to prepare for increasing challenges to their current business models. For example, utilities are seeing more customers use less energy as they put solar on their homes. This means the utilities are going to need to find new sources of revenue. The auto companies face a similar challenge because more and more people are choosing to use Uber and Lyft instead of buying their next car.
And, all of these companies need to find ways to increase customer engagement with an increasingly millennial customer base that want to reduce their carbon footprint. We’re helping our investors find rapidly growing companies that understand how to use big data, IoT, and software solutions to solve these challenges in an environmentally sustainable way.
How large of an impact do you believe startups can have toward these challenges? Why is it important for investors and others in the entrepreneurial ecosystem to support them?
Start up’s can have a huge impact in helping to solve the major challenges of the day. I joined Tesla’s board of directors when they had just 29 employees in Jan 2007, and people thought we were crazy for investing in an electric car company, but Tesla has revolutionized the global auto industry. More importantly, Tesla has helped to move the global auto industry from internal combustion engines to electric at a rate few thought possible. Last year Tesla’s revenues were over $24.6B and GM has just announced their future is “all electric”. Most other auto companies are following suit.
When you stop to consider that the average American car gets roughly 25 miles per gallon, and the Tesla Model gets an EPA rated the equivalent of 123 miles per gallon, this is a profound change. Also, 12 countries including, Germany, France, England, India, Taiwan, Israel, Norway, Ireland and others have passed laws prohibiting the sale of internal combustion engines by as early as 2025 (Norway) and 2030 (England and India). This shows the power that entrepreneurs can have not just on the economy, but on the planet.
Our venture firm was a relatively small investor in Tesla, but at the time we invested, Tesla was teetering on the brink of financial solvency—so the venture ecosystem in Silicon Valley made a huge difference.
How can investors, specifically early stage angels, find great opportunities to invest in for-profit, social impact companies?
It’s not easy. First, they need to cast a wide net. The more companies you review, the smarter you get. Second, they need to be laser-focused on whether the company has a real business model that will sustain solid gross margins. We put a heavy emphasis on gross margins at our firm. There is a “mantra” out there that companies have to lose a lot of money to get big. I don’t believe that. eBay never had an unprofitable quarter in its early years because it had an extraordinary business model.
Investing in social impact is wonderful, but you need to be very disciplined if you want to make money.
Can you provide 1-2 examples of startups that are on the path to achieving meaningful social/environmental impact, along with high profitability?
It’s hard to think of a company that’s had greater social impact than Tesla, but it’s just beginning to post profitable quarters now. I did a recent interview on CNBC where Charlie Munger of Berkshire Hathaway chided Tesla’s stock price, saying “people think Elon Musk can cure cancer”. Tesla won’t cure cancer, but Elon Musk helps push the global auto industry from gas to electric vehicles over the next decade, he will have played a historic role in changing the trajectory of global warming.
One of our companies that I’m most proud of is called Revolution Foods. They have been leaders providing healthy lunches for school kids since 2007. They started in Oakland, California serving eight low-income schools in Oakland. Today they serve over 2,500 schools in 27 states. They’ve changed the lives of millions of kids by dramatically raising the nutritional quality of school lunches around the country.